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Recommendations India

Zensar Technologies Q1FY15 results update

July 25, 2014, Friday, 15:07 GMT | 10:07 EST | 18:37 IST | 21:07 SGT
Contributed by Nirmal Bang

USD Revenues grew by 3.8% led by good growth seen in the enterprise business which grew 6.6% QoQ. During the quarter, the IM services grew by 2.5% QoQ whereas IM Products business grew by 1% QoQ. Management consciously plans to reduce low margins IM product business. ZTL’s share is trading at attractive valuations of 7.2x and 6.1x its expected earnings for FY15E and FY16E. With improvement in the deal pipeline, we continue to remain positive and have a BUY recommendation on the stock.

Financial Highlights:

- INR Revenues for the quarter remained flat QoQ at Rs.605 crore. There were project delays due to delays in Visa procurements which impacted revenues during the quarter. Despite this, USD revenues grew by 3.8% QoQ which is above our expectations. Company has signed some big deals in the past few quarters which would drive the revenues growth going forward.

- IM Products business continued to be laggards. Company is in the process of shutting down some data centres in onsite businesses and adding up some new technology related services in the IM business. Company is increasing thrust in the IM business by providing dual shore services and is consciously reducing the products business.

- EBIDTA margins de-grew 190 bps QoQ at 13.6% mainly due to project delays. Company expects them to improve going forward with contribution from the IM business increasing. Company would be giving wage hikes in Q2FY15 of ~ 7% in offshore and 1.5% on onsite. This can have an impact on margins of ~ 100 to 150 bps.

- For the quarter, made forex gain of Rs.4.7 crore against a loss of Rs. 13.4 crore in the previous quarter.

- Adjusted PAT fell by 20% QoQ to Rs.53 crore for the quarter.

Other Highlights

- Growth in US was in double digit QoQ during the quarter.

- Europe is growing fast and deal pipeline looks good.

- Deal pipeline stands at ~ $ 400mn.

- Net Cash position stands at Rs.201 crore.

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